Power Play: Arizona fighting to land Tesla but big obstacles remain

Arizona will have to overcome some inherent disadvantages to beat out Nevada, Texas and New Mexico for Tesla Motors Inc.’s coveted $5 billion electric battery factory.

But on the plus side, the Phoenix area has workforce advantages over small-market contenders such as Reno and Albuquerque. Phoenix and Tucson also have a proximity edge over sites under consideration in Texas.

Tesla needs as much as 2,500 acres and wants direct rail access to link the 10 million-square-foot plant to the electric-car maker’s assembly facility in California. That puts Pinal County, Buckeye and Tucson on Tesla’s list.

“We do pretty well on trains and being able to get things over to the (Port of) Long Beach and into California,” said business attorney Brett Johnson, a partner with Phoenix law firm Snell & Wilmer LLP who is familiar with trade, supply-chain and site selection projects.

Johnson said Pinal County has land that could suit Tesla, and Arizona’s pro-business regulatory environment is an advantage. Still, he’s watchful of what kind of incentives could come out of Austin.

“Texas is extra aggressive,” he said.

John Boyd, a national site selection executive and principal with the New Jersey-based Boyd Co., said he’s seen more advanced manufacturing firms looking at Pinal County, which has ample land at lower costs than in metro Phoenix.

Buckeye Economic Development Director Len Becker didn’t mention Tesla by name, but said the regional industrial footprint and lack of large spaces in areas closer to Phoenix is pushing manufacturing site selection to the outer suburbs. Buckeye has land adjacent to railroads and can leverage the Valley’s labor pool.

“Considerations that may not have been on a prospect’s radar screen five years ago are front and center today,” Becker said.

While an official familiar with the Tesla search said Tucson has the electricity and renewable energy bandwidth Tesla is seeking, Boyd said other manufacturers have worried about finding enough skilled workers in the Old Pueblo.

Albuquerque and Tucson are of similar sizes, and Tesla CEO Elon Musk previously flirted with locating the company’s assembly plant in that New Mexico city. One of his other ventures, Space Exploration Technologies Corp., has operations in Texas and just announced more in New Mexico.

A fighting chance

Like Apple and other companies, Tesla requires economic developers, real estate brokers and even public officials to sign agreements not to talk to the media or others about the site selection process.

“Due to confidentiality agreements, we are unable to discuss,” said Laura Shaw, senior vice president of Tucson Regional Opportunities Inc.

Greater Phoenix Economic Council spokeswoman Michelle Kauk also declined to comment on that basis.

“It’s all hush-hush,” said Pinal County’s Johnson.

Tesla spokeswoman Alexis George­son would say only that all four states are still in the running, and the automaker is not looking at putting the plant next to its California assembly line or making the batteries in Asia, where most global supply is produced.

Arizona has a 6.5 percent corporate income tax rate. That is lower than California’s and New Mexico’s 7.3 percent — but it’s not zero, which is the rate in Nevada and Texas.

The Arizona Commerce Authority and Gov. Jan Brewer have a $25 million fund they can use to help close the deal with Tesla. The automaker also could qualify for a 5 percent property tax rate in addition to job creation and job training tax credits, as well as a newly approved energy and manufacturing tax break.

That gives Arizona a fighting chance, said Greater Phoenix Chamber of Commerce President and CEO Todd Sanders. The incentive fund, along with job creation and other tax breaks passed in 2011, improve Arizona’s odds in competing for bigger projects such as Tesla.

Arizona must overcome the Legislature siding with car dealers on rules restricting manufacturers from selling directly to consumers in the state. Texas Gov. Rick Perry has come out in favor of allowing Tesla direct sales in his state, but a similar bill died in the Arizona Senate this year. Tesla representatives and lobbyists have said auto sales rules are not tied to the site selection, but some believe it’s a bigger consideration.